Nall Products manufactures a wide variety of products in several facilities. It produces three models of...

 

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Nall Products manufactures a wide variety of products in several facilities. It produces three models of mobility scooters in its St. Claire plant: models NP-10, NP-20, and NPX-70. The machine and labor times for the three models are similar. The difference in the production process is in the amount of testing, size of the production runs, and so on. The St. Clair plant allocates manufacturing overhead based on machine-hours. Last month, the company shipped 750 NP-10s, 500 NP-20s, and 250 NPX-70s. The revenues and expenses for the last month were as follows: Sales revenue Direct costs Direct materials Direct labor Variable overhead Machine setups Quality assurance Assembly Machine usage Shipping Contribution margin Fixed costs General plant support Other fixed costs Gross profit NALL PRODUCTS Income Statement For the Month Ended October 31 NP-10 $ 414,000 Activity Machine setups Quality assurance Assembly Machine usage Shipping 114,000 37,800 NP-20 $ 353,000 Cost Driver Number of production runs Number of tests Number of units Machine-hours Number of units shipped 103,000 37,800 NPX-70 $ 264,000 73,000 32,000 NP-10 Total $ 1,031,000 After a review of operational and financial practices at the plant, a consultant recommended that the St. Clair plant adopt an ABC system for computing product costs to provide better information for routine decisions. The consultant also recommended the following activities and drivers be used in the system: 15 25 750 8,625 750 290,000 107,600 79,500 72,000 42,000 18,000 31,500 $390,400 73,600 48,600 $ 268, 200 Activity Level NP-20 20 50 500 6,000 500 NPX-70 25 50 250 4,125 250 The consultant also suggested not allocating the fixed costs to products, because "there does not seem to be much of a link between the costs and production activity." Required: a. Using machine-hours to allocate production overhead, complete the income statement for Nall Products for the month. Follow the consultant's recommendation and do not attempt to allocate general plant support or other fixed costs. b. Complete the income statement using the bases recommended by the consultant. c. How might activity-based costing result in better decisions by Nall Product's management? Nall Products manufactures a wide variety of products in several facilities. It produces three models of mobility scooters in its St. Claire plant: models NP-10, NP-20, and NPX-70. The machine and labor times for the three models are similar. The difference in the production process is in the amount of testing, size of the production runs, and so on. The St. Clair plant allocates manufacturing overhead based on machine-hours. Last month, the company shipped 750 NP-10s, 500 NP-20s, and 250 NPX-70s. The revenues and expenses for the last month were as follows: Sales revenue Direct costs Direct materials Direct labor Variable overhead Machine setups Quality assurance Assembly Machine usage Shipping Contribution margin Fixed costs General plant support Other fixed costs Gross profit NALL PRODUCTS Income Statement For the Month Ended October 31 NP-10 $ 414,000 Activity Machine setups Quality assurance Assembly Machine usage Shipping 114,000 37,800 NP-20 $ 353,000 Cost Driver Number of production runs Number of tests Number of units Machine-hours Number of units shipped 103,000 37,800 NPX-70 $ 264,000 73,000 32,000 NP-10 Total $ 1,031,000 After a review of operational and financial practices at the plant, a consultant recommended that the St. Clair plant adopt an ABC system for computing product costs to provide better information for routine decisions. The consultant also recommended the following activities and drivers be used in the system: 15 25 750 8,625 750 290,000 107,600 79,500 72,000 42,000 18,000 31,500 $390,400 73,600 48,600 $ 268, 200 Activity Level NP-20 20 50 500 6,000 500 NPX-70 25 50 250 4,125 250 The consultant also suggested not allocating the fixed costs to products, because "there does not seem to be much of a link between the costs and production activity." Required: a. Using machine-hours to allocate production overhead, complete the income statement for Nall Products for the month. Follow the consultant's recommendation and do not attempt to allocate general plant support or other fixed costs. b. Complete the income statement using the bases recommended by the consultant. c. How might activity-based costing result in better decisions by Nall Product's management?

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